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NY PwC M&A Outlook
(U.S. Newswire Via Acquire Media NewsEdge) BC-NY-PwC-M&A-Outlook
To: BUSINESS EDITORS
Contact: Joe LoBello, lobello@braincomm.com, or Jo Anne Barrameda,
barrameda@braincomm.com, both of Brainerd Communicators, Inc.,
+1-212-986-6667; or Kathryn Oliver, PricewaterhouseCoopers LLP,
+1-860-301-0402 (mobile), kathryn.oliver@us.pwc.com
NEW YORK, Dec. 16 /PRNewswire/ -- There have been signs of life in the
deal market during the second half of 2009, and mergers and acquisitions (M&A)
activity is expected to pick up in 2010, according to PricewaterhouseCoopers'
(PwC) Transaction Services practice. While credit markets are easing for some
participants, financing will remain the dominant challenge to M&A activity
next year, increasing the pressure on middle market deals. Strategic buyers
with strong balance sheets and robust cash reserves will be well-positioned
for strategic M&A opportunities. As these strategic buyers take advantage of
their ability to maneuver in the face of a challenging deal environment, PwC
predicts they will pursue deals with a focus on synergies - including
enhancing productivity, providing cost-savings and adding revenue volume to
their businesses.
"Those who have built their balance sheets for a rainy day might come out
of last year's storm to find the rainbow, and at the end of it, nicely-valued
acquisition targets that provide opportunities for revenue growth and enhanced
productivity," said Bob Filek, Partner with PricewaterhouseCoopers Transaction
Services. "As a result, M&A activity in 2010 will be driven by strategic
buyers who have access to capital and the strategic vision to capitalize on
some of the best values we have seen in recent times."
"Companies have taken aggressive actions on costs; the low hanging fruit
is gone, and to drive further efficiency they will look to combine with
similar players to drive scale and enhance productivity. The 'merger of
productivity' will be a driving force in 2010 as companies look to drive
revenue growth and enhance margins," continued Filek.
Through the first eleven months of 2009, there were 6,772 deals worth a
total of $614 billion, compared with 8,890 transactions worth a total of $1
trillion during the same period last year, according to financial data
provider Thomson Reuters.
(Photo: http://www.newscom.com/cgi-bin/prnh/20091216/NY27204-a)
The credit freeze has impacted transactions across the board, including
private equity (PE) and middle market transactions. The number of private
equity acquirers in year-to-date November 2009 was down by 32.7% to 1,171,
while value dropped by 21% to $146 billion from $184 billion over the same
period in 2008. In the middle market, deal volume declined by 45% to 261 from
480 in 2008.
(Photo: http://www.newscom.com/cgi-bin/prnh/20091216/NY27204-b)
(Photo: http://www.newscom.com/cgi-bin/prnh/20091216/NY27204-c)
"There is still in excess of $1 trillion of capital committed to
alternative investment funds sitting on the sidelines, waiting for the
appropriate opportunities. The diversified private equity players have been
bulking up their debt, hedge and distressed funds to take advantage of
opportunities in distressed, reflecting their ability to evolve and
successfully navigate choppy waters," said Greg Peterson, Partner with
PricewaterhouseCoopers Transaction Services.
Regarding private equity exits, "we expect to see more IPOs coming to
market in 2010 from private equity as the markets continue to firm up," noted
Peterson. More the half of the IPOs completed during 2009 were by financial
sponsor-backed (primarily private equity) companies, a trend expected to
continue through the remainder of 2009 and 2010.
"Financing is the main factor contributing to the instability of middle
market deals. With so many traditional sources of lending now unavailable,
including the rapidly increasing number of banks being shuttered by the FDIC,
it remains a challenge for some companies and dealmakers to find capital,"
continued Peterson.
The divestitures market will also be a factor in fueling deals, as more
companies decide to rid themselves of holdings they don't consider to be part
of their core business. A recent PwC Transaction Services survey, "Doing
Divestitures in Difficult Times," concluded divestiture activity was poised
for a higher level of activity in the next twelve months, especially among
corporate buyers. Of the survey respondents, 69% anticipate similar or
increased divestiture activity in the coming year. The percentage of M&A
activity contributed by divestiture transactions has begun to increase in
recent months, suggesting this is already taking place as 2010 quickly
approaches.
Sectors that continue to present opportunities include:
-- Consumer Products -- As retailers continue to pressure margins and
growth through private label strategies, consumer product companies
are accelerating trade spend at the expense of margins. Watch for
high-profile combinations as branded companies look to gain scale and
negotiating leverage with retailers, while enhancing their scale to
drive productivity. A focus on high-growth categories and emerging
markets will also be in vogue in 2010.
-- Technology -- The headline transactions of the past year -
transformative deals - will continue as the battle over the data
center and end-to-end services continues to drive the larger players.
The large, mature players will also continue to absorb smaller
companies who provide intellectual property that can be leveraged - at
an array of multiples - as some will be seen as desirable by multiple
players and others are made attractive by a higher bar to access in
the public markets. At the other end of the scale, there is more
consolidation to come amongst weaker players, especially in
semiconductors.
-- Energy -- The opening of the capital markets window (both debt and
equity) will pave the way for increased M&A activity in 2010. The
seller/buyer expectation gap is slowly narrowing. Large-cap
exploration and production companies and Master Limited Partnerships
have strengthened their balance sheets considerably and are ready to
fuel growth again via the M&A route. PwC expects natural gas to
continue to be a particular bright spot for acquisitions.
-- Financial Services -- As the FDIC continues to take actions with
troubled banking institutions, watch for consolidation among the
regional banks at the hands of the FDIC to be a key theme of 2010. One
key question is if private equity will take more seats at the banking
deal table. PwC expects the asset management sector will also
continue to be popular in this space.
-- Automotive -- With the U.S. automotive industry remade, it will be
time for the suppliers to resize and adjust their business models to
the new paradigm. Watch for a realignment of product portfolios and
manufacturing footprints as tier-one suppliers adjust to the new
reality. Low-cost country sourcing will be a continued theme, while
Asian acquirers may start to acquire more U.S.-based assets.
-- Healthcare -- Once healthcare reform has run its course, look for the
industry to ratchet up M&A activity. Consolidation will accelerate in
the services, managed care and pharma sectors, driven by the need to
reduce costs and increase productivity. Watch for seasoned leaders to
embark on new ventures to shake up the business-as-usual model. The
pharmaceuticals sector will continue pursue smaller acquisition
targets, and explore areas less dependent on government, such as
consumer product applications, animal health, vaccines, and biologics.
-- Entertainment and Media -- Despite a sluggish economy, the
Entertainment and Media sector still managed to pull off several
high-profile entertainment deals in the second half of 2009. Look for
strategic buyers to focus their efforts on content- and
distribution-oriented acquisitions, both domestically and
internationally, in response to favorable pricing in the market, as
well as continuing to explore new media opportunities.
Other factors influencing M&A activity in 2010 may include the following
scenarios:
-- Private equity's ability to exit through Initial Public Offerings
(IPOs) or acquisitions -- The IPO market has been re-established as a
viable exit vehicle for private equity investments. IPO activity in Q4
of 2009 is expected to be the strongest quarter since 2007, with
PE-backed deals contributing the majority of the volume in this deal
channel. Assuming the equity markets do not experience a significant
correction, PwC expects IPO activity to continue to increase in 2010.
-- The "Wild Card" -- How much would an economic double-dip rain on the
M&A party? "We see continued weakness in key fundamental indicators,
not the least of which is consumer demand," said Filek. "However,
while we may see some challenges and market disappointments in 2010,
the underlying fundamentals will outweigh the short-term stress, and
companies will stay committed to their strategic vision and complete a
lot of transactions in 2010."
How accurate was the PwC Transaction Services 2009 M&A forecast?
Troubled companies will look to align with larger, stronger players in
order to survive, creating the perfect storm for mergers of necessity
Correct. 2009 saw patient buyers take advantage of favorable pricing to
achieve their strategic goals.
Innovation will be a key for private equity to evolve as an industry in
2009.
Correct. Private equity firms have succeeded in getting creative to gain
control of businesses through nontraditional means. Taking control of debt
positions became a tool of choice by private equity to gain control of a
company.
The new administration and the stimulus plan would generate opportunities
for both private equity and corporate buyers in healthcare, technology and
energy.
Too early to call. We may have overestimated the speed to which the
stimulus would flow into the economy. We'll see what 2010 holds.
More traditional consolidation will drive results in financial services in
2009.
Partially correct. There were some consolidation plays in banking and
asset management; however, overall deal value was not significant related to
recent years. The FDIC-assisted bank deals led the stats in terms of numbers.
Automotive and oil & gas M&A activity will remain quiet.
Correct. M&A activity was stagnant in these industries.
Emerging markets will lead us out of the slump in deal activity with
Brazil, India and China as the key regions of focus for those who sat on the
sidelines over the last five years.
Partially correct. It was certainly true for the equity markets in these
regions. The jury is still out on the extent of emerging market M&A.
The accuracy of the PwC Transaction Services previous forecast does not
guarantee future accuracy.
About PricewaterhouseCoopers Transaction Services Practice
The PricewaterhouseCoopers' Transaction Services practice provides due
diligence for M&A transactions, along with advice on M&A strategy and
integration, restructuring, divestitures and separation, valuations,
accounting, financial reporting, and capital raising. With approximately 1,000
deal professionals in 16 cities in the U.S., and a global network of over
6,000 deal professionals in 90 countries, experienced teams are deployed with
deep industry and local market knowledge, and technical experience tailored to
each client's situation. The Transaction Services team can be involved from
strategy to integration and employ an integrated business approach to uncover
the realities of a deal. The field-proven, globally consistent, controlled
deal process helps clients minimize their risks, progress with the right
deals, and capture value both at the deal table and after the deal closes. For
more information, visit http://www.pwc.com/ustransactionservices.
PricewaterhouseCoopers (http://www.pwc.com) provides industry-focused assurance,
tax and advisory services to build public trust and enhance value for our
clients and their stakeholders. More than 163,000 people in 151 countries
across our network share their thinking, experience and solutions to develop
fresh perspectives and practical advice.
"PricewaterhouseCoopers" refers to PricewaterhouseCoopers LLP or, as the
context requires, the PricewaterhouseCoopers global network or other member
firms of the network, each of which is a separate and independent legal
entity.
(C) 2009 PricewaterhouseCoopers LLP. All rights reserved.
SOURCE PricewaterhouseCoopers Transaction Services
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(c) 2009 U.S. Newswire Corp.
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